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Oct. 28, 2016

Public Citizen Applauds Education Department Rule Prohibiting Schools From Using Forced Arbitration Clauses in Student Contracts

Statements of Public Citizen Experts

Note: Today, the U.S. Department of Education finalized a package of rules designed to protect students from predatory colleges and career training programs that receive federal funding. The package includes a rule to prohibit the use of forced arbitration clauses in many student enrollment contracts. These clauses require students to submit any dispute that might later arise between the students and the institution to binding arbitration, a private process with little right to appeal, instead of a court. Students typically cannot band together to bring their claims jointly in arbitration, and they often are forbidden from publicly discussing the arbitration process. Below are reactions from our experts:

Julie Murray, attorney, Public Citizen’s Litigation Group
Today’s rule is a game-changer for many students who will finally have a realistic opportunity to have their day in court after being defrauded. This rule is well within the Department’s legal authority, and it’s smart economic policy. Too often, taxpayers are left holding the bag when students graduate from predatory colleges with worthless degrees and federal loans they cannot possibly repay. We look forward to working with the Department to implement this rule and to adopt further measures to strengthen students’ access to court.

Lisa Gilbert, director, Public Citizen’s Congress Watch division
Public Citizen applauds the Obama administration’s rule prohibiting these “rip-off” clauses in student contracts. For far too long, predatory schools have used fraud as a business model, and they’ve gotten away with it by shutting the courthouse doors to students and forcing those students into individual, secret arbitrations. The burden of making students whole for fraud should fall on the shoulders of schools that break the law, not vulnerable students or the public.

Public Citizen petitioned the Department of Education for strong student protections from forced arbitration in February. Since then, 30 U.S. senators (PDF), more than 21,000 citizens and dozens of groups (PDF) have joined the call for a strong rule barring schools that receive federal funding from using these provisions.

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